Interesting article in the Chronicle last week by William Strauss and Neil Howe, authors of Generations and Millennials Rising. Title: The High Cost of College: An Increasingly Hard Sell.
Great quote:
Many [Gen-Xers, as parents of college kids] will ask whether student loans are, in fact, "financial aid" or rather just an inducement to enroll — much as car loans are not "car aid" but a mere inducement to buy a car.
Another great quote:
The longstanding assumption about the collegiate earnings premium is due for a high-stakes reassessment in this new era of high tuition, high debt, and parents with a keen eye on the bottom line.
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3 comments:
With all due respect, the jibe comparing student loans to auto loans is undeserved. Federally insured student loans are made at below-market interest rates, carry an interest subsidy for students with need, and have flexible repayment options which include deferment of payments while in school.
When auto lenders start lending money at 4% regardless of credit history, picking up the tab for that interest while the driver is driving the car, and allow the owner to make his or her first payment six months after he's done driving the car, then we can start making cracks about "car aid."
You're right. But the writers are describing a likely situation 15 years or so from now. Today, public four-year students are borrowing near the maximum in federal loans. Unless 1) tuition growth is arrested, 2) federal grants increase wildly, or 3) federal loan limits are raised, we're going to see continued increases in private "alternative" loans, (the fastest growing form of student aid) which resemble car loans more than federal loans. http://www.e-guana.net/organizations.php3?action=printContentItem&orgid=104&typeID=906&itemID=9287
Regarding the three points you made, we're in agreement.
Alternative loans, although they often have some deferment options, have terms that are much worse than those made through federal programs.
Additionally, alternative lenders enjoy the same protections from bankruptcy discharge as does the Department of Education as a lender, making these loans even more dangerous for students than auto loans.
I don't believe we'll see a substantial increase in federal loan limits until the Congress sees an effort on the part of colleges to slow growth in tuition. Unfortunately the current generation of students borrows to get the education that opens the doors to jobs which only used to require a high school diploma before there was surfeit of college graduates.
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